Vietnam Airlines to absorb budget carrier Jetstar

HA NOI — Low-cost airline Jetstar Pacific will merge with national flag carrier Vietnam Airlines in the near future, according to deputy head of the Civil Aviation Administration of Viet Nam (CAAV) Dinh Viet Thang.
The move is considered the most feasible plan to save the carrier from bankruptcy.
The Ministry of Finance and the Ministry of Transport have agreed to the move, which is awaiting approval from the Prime Minister, said Thang during a briefing at the Ministry of Transport late last week.

HA NOI — Low-cost airline Jetstar Pacific will merge with national flag carrier Vietnam Airlines in the near future, according to deputy head of the Civil Aviation Administration of Viet Nam (CAAV) Dinh Viet Thang.

The move is considered the most feasible plan to save the carrier from bankruptcy.

The Ministry of Finance and the Ministry of Transport have agreed to the move, which is awaiting approval from the Prime Minister, said Thang during a briefing at the Ministry of Transport late last week.

Thang said that Jetstar Pacific had been operated by the State Corporation for Investment and Capital (SCIC) for several years under a low-cost model but was now facing difficulties due to inefficient operation that had caused heavy losses. SCIC, which uses State capital to invest in business, is now the biggest shareholder in Jetstar Pacific.

Restructuring the company was essential, he said.

The Finance Ministry has kept the Prime Minister informed about the merger and participants at some recent Government meetings have outlined a number of different plans. The most effective plan was for the airline to transfer its capital to Vietnam Airlines, said Thang, adding that the timing of the merger would be decided by the Government.

Vietnam Airlines was the top carrier in the country with an 80 per cent market share, while Jetstar is second with about 17 per cent. Upon finalisation of the merger, Vietnam Airlines market share would increase to nearly 100 per cent, Thang said.

This would be the first merger in the country's history of aviation, he said.

He acknowledged that Vietnam Airlines would gain a monopoly in the local market with the merger but said that even without the merger, the State owned airline already had a lion's share of the market.

However, he affirmed that the merger was not bad for the domestic airline market because the Government and the Ministry of Transport would continue to expand the market by allowing more private airlines to compete. He added that Vietjet Air began operating this month.

According to the Sai Gon Tiep Thi newspaper, Vietnam Airlines will have a 70 per cent stake in Pacific Airlines from the SCIC. Therefore, once taking over the 70 per cent of SCIC, Vietnam Airlines will hold a controlling stake in the budget airline.

Established in 2004, Pacific Airlines was founded by Saigontourist. Vietnam Airlines has an 86 per cent stake in the carrier. In 2007, Australian flag carrier Qantas acquired a 27 per cent stake in the carrier. Pacific Airlines changed its name to Jetstar Pacific and the remaining majority stake in Jestar Pacific was held by Vietnamese partners (SCIC and Saigontourist).

Fierce competition in the domestic aviation market has become a burning issue since 2008. Jetstar Pacific began applying different fare levels, some of which were lower than the ceiling levels charged by Vietnam Airlines. This forced Vietnam Airlines to change its pricing mechanism to compete with Jetstar Pacific.

Due to increased competition, airlines have been forced to lower fares despite rising fuel prices, resulting in their huge losses. Jetstar Pacific was reportedly taking on heavy losses, partly due to fuel hedging.

Losses even led to an investigation after which the former general manager of Jetstar Pacific, Luong Hoai Nam, was arrested while two foreign directors were prohibited to leave the country.

After that, SCIC, the largest shareholder, appointed Le Song Lai, then deputy general director of SCIC, to be the new general manager of Jetstar Pacific. However, Jetstar Pacific still incurred losses over the last year on domestic air routes.— VNS